Introduction
In the operation of a system, organization or machine, the extent of success lies in its ability to produce the highest possible results within a specified period of time (Boyer & Verman, 2009). This effectiveness focuses on the capacity which is the quality of work done in a defined period of time. This paper explores the differences between peak capacity and effective capacity in relation to production levels. It weighs the various strengths and weaknesses presented by each capacity. A case study of capacity cushions for airlines explores both concepts according to Sasaki (2008). It also expresses how the two capacities can complement each other in ensuring the achievement of high production levels.
Peak Capacity and Effective Capacity
Scholars define capacity as the measure of maximum achievable output of a firm, system, organization, a machine (equipment) or an individual. In other words, capacity is the output volume produced within a given span of time. Experts express capacity in varied ways like the number of people able to be served hourly, quantity of work able to be done in a year, quantity of parts processed in a week, etc. Peak capacity and effective capacity form the two categories of capacity. This paper explains the differences between the two categories of capacity; peak capacity and average capacity. By definition, peak capacity refers to the maximum output rate that a facility or process is capable of achieving under ideal conditions in a short duration of time. Effective capacity, on the other hand, refers to the maximum economically sustainable output that a company, system or process can attain for an extended period under normal prevailing circumstances (Ben Joem, 2010).
Differences between peak capacity and effective capacity
- Peak capacity assumes that the system operates at 100% efficiency with all equipment and workers fully operational while effective capacity acknowledges that ideal conditions cannot be attained at any given time and provides for normal operational conditions.
- We cannot sustain peak capacity for a longer period of time because it subjects the system to a risk of failure. Effective capacity, on the other hand, gives provision for a system to operate for the extended period of time since factors of safety are considered.
- In most cases, under peak capacity the cost of operation usually outweighs the benefits derived from the process whereas under effective capacity the system benefits in most cases outweigh operational costs.
- Peak capacity has the advantage of meeting demands for peak periods whereas effective capacity cannot be used to meet such peak demands.
- Under peak capacity, the equipment is likely to fail increasing the cost of maintenance unlike in effective capacity, which gives provision for repair and maintenance.
Capacity Bottleneck
Bottleneck is any operation in the process that has the lowest effective capacity or performance, which lead to limits the system’s output. Bottleneck is any operation with capacity utilization greater than 100%.
Bottleneck Analysis for Tissue machines
Bottleneck is facing many factories during manufacturing and limits the total performance and lead to have a large negative effect on the efficiency. This case study indicated that the tissue machine was facing severe vibration on the press. So the management should find a solution for this problem to reach the speed target because the machine speed decrease from 5300 to 4700 fpm. To solve this problem, Metso recommended increasing the distance between the upper part and the bottom part of the condensate headers. Finally, by solving this problem the machine is starting to work as usual in the 6235 to 6560 fpm speed range (Metso, 2010).
Capacity Cushion and Effective Capacity:
Capacity Cushion is the reserve capacity that businesses keep on hand in order to deal with unexpected changes in demand. Capacity cushion is measured by subtracting demand from effective capacity. Therefore, companies where demand is highly variable have larger capacity cushions and companies where costs are high, demand is not as variable tend to maintain a smaller cushion capacity.
Capacity cushion and its application in the Airline Industry
Usually all the airlines overbook their flights, the reason is to maintain close to full capacity. The cost of each seat empty is really high for flights and, it is in their best interest to fill all seats; sometimes even by lowering prices. There is usually a yield management system put in place; same as applied in hotels. The yield Management system tries to achieve maximum capacity by overbooking the flights usually by 10 % ( this % implies the no show rate).
But when the forecasting goes wrong; the flight is overbooked and passengers do show up, that is of high costs to the airlines as well. Usually that could be seen when passengers are upgraded to Business class tickets from Economy Class as there is no other space available. .
Theory of Constrains
Theory of constrains is first developed in manufacturing by Eliyahu Goldratt and views systems and processes as a series of dependent events. It is a useful tool to measure whether the existing resources are fully efficient and effective. This theory focuses on utilizing bottleneck resources; an increase in the input resources will cause a rise in the total output of the whole system.
Nowadays, theory of constrains is no longer limited in the manufacturing industry, various service business also consider it highly valuable. For example, research found that the theory seems to be convenient for the publicly funded health systems which experience resource constraints, although there is little information addressing the changes required to adopt this theory. Finally, a model developed for the publicly traded for-profit company was successfully used to forms the foundation for creating a similar model for health systems funded by the public.
In the long-term capacity planning, economies of scale, capacity timing and sizing strategies and systematic capacity decision should be taken into consideration.
Conclusion
Having a clear understanding of peak capacity and effective capacity of a production system is important in ensuring the system realizes its full potential through maximum production according to Boyer & Verma (2009). In an attempt to achieve its peak capacity, workers will put in their best efforts to cover the desired amount of work or beyond in the time available during their work shifts. Being aware of the system’s capacity will help in noticing a reduction in the production process thus creating a solution to the problem. The organization will also strive to ensure all equipments are working efficiently and that the conditions at work are kept constant and ideal. Through this, they will ensure nothing interferes with the workers’ rate of performance.
Though peak capacity may be faced with a risk of failure, effective capacity will be able to cater for this through the provision of extended working hours. They complement each other. In respect to the Theory of Constraints, it is important to establish effective interaction between the processes and systems in order to achieve desired results (Sadat & Golden, 2013). This provides steps towards making production a successful venture.
References
BenJoem, (2010, November 11). Capacity. Retrieved March 11, 2013 from
http://www.quizlet.com/3402237/scm-1050-test-5-flash-cards/
Boyer, K. K., & Verma, R. (2009). Operations & Supply Chain Management for the 21st
Century. New York: Cengage Learning.
Sadat, S., Carter, M. W., & Golden, B. (2013). Theory of constraints for publicly funded health systems. Health Care Management Science, 16(1), 62-74. Retrieved March 11, 2013 from DOI: http://www.dx.doi.org/10.1007/s107 29-012-9208-9
Sasaki, B. (2008, February 10). Capacity Cushions and the Airline Industry. Retrieved March 11, 2013 from http://www.capacitycushions.blogspot.ca
Metso (2010). Pulp and Paper, Retrieved March 11, 2013 from www.metso.com/pulpandpaper/nsf/111019/FieldServices.pdf
